No. of Recommendations: 8
Every so often there's a useful discussion here about investing safely for the retired set -- an object of concern for so many of us, and eventually, all of us.
A few days ago there was an article in the WSJ: These Hot New Funds Are ‘Boomer Candy’ for Retirees. Excerpts:
[Funds that use derivatives to produce extra dividend income or protect against losses,]
which were almost nonexistent four years ago, [provide the] chance to chase stock returns while also protecting against a potential market slide. The funds have taken in . . . almost $120 billion.
The most popular of the strategies, dubbed “equity premium income” by fund managers, invests in a portfolio of large-cap stocks while also selling options contracts on those shares. The funds generate higher dividend income than is typical in a stock fund—sometimes 8% to 10%—but they also cap investor gains and carry chunky fees.
Buffer funds, another popular strategy that uses derivatives, claim to guard against investor losses, up to a point, while limiting potential gains as well. A similar class of funds even advertises 100% downside protection, when certain conditions are met.There's more to this, of course, and how well this downside protection would actually work is only one issue. The article is here:
https://www.wsj.com/finance/investing/retirees-boo...Mentioned in the article:
https://www.calamos.com/funds/etf/calamos-sp-500-s...Caps gains at 9.8%, otherwise follows S&P 500 minus the fee, and over one-year holds promises 100% downside protection.
https://am.jpmorgan.com/us/en/asset-management/adv...The fund’s “covered call” strategy involves selling options tied to the large-cap stocks it invests in, which limits upside but generates premiums that are paid out to investors in the form of high dividends—roughly 8% over the past 12 months. The annual fee is 0.35%.BlackRock is evidently launching such funds presently. A cursory look found this one:
https://www.blackrock.com/us/individual/products/3...iShares Large Cap Deep Buffer ETF seeks to track the share price return of the iShares Core S&P 500 ETF (the “Underlying ETF”) up to an approximate upside limit, while seeking to provide downside protection against approximately 5-20% of Underlying ETF losses over each calendar quarter.
I feel skeptical, but on the other hand, I can imagine some folks putting at least a corner of their portfolio into such instruments, and I thought some of the folks here might be interested.
Warmly,
Wot
